Oil Prices Surge. Trump Says Not Worried, US Treasury May Intervene in Crude Oil Futures for First Time

TradingKey - Global markets were rattled as an oil supply shock triggered by escalating conflict in the Middle East sent U.S. crude benchmarks surging on Thursday, marking the largest single-day closing gain since 2020.

During midday U.S. trading on Thursday, March 5, WTI crude futures for April delivery briefly climbed above $82, gaining about 10% intraday before closing up 8.5% at $81.01 per barrel; the international benchmark Brent crude for May delivery closed up 4.93% at $85.41 per barrel, both marking their highest closing levels since July 2024.

Since the U.S. and Israel launched military strikes against Iran last Saturday, U.S. crude has surged nearly 21% based on closing prices.

Meanwhile, data from the American Automobile Association (AAA) showed that the national average gasoline price rose to $3.25 per gallon on Thursday, up 27 cents from a week ago and 36 cents from a month ago.

When asked about rising prices at the pump, U.S. President Donald Trump responded: "I’m not worried at all. When this is all over, prices will come down fast. If they go up, they go up. But this (the military action against Iran) is much more important than a small increase in the price of gasoline."

Trump also stated that he currently has no intention of tapping the Strategic Petroleum Reserve (the world's largest emergency crude supply) and expressed confidence that the Strait of Hormuz will remain open.

U.S. Interior Secretary Doug Burgum later confirmed that the Trump administration is weighing a range of response options, stating that "all options are on the table," including measures with immediate effect as well as more complex long-term strategies.

U.S. Considers Multiple Measures to Curb Oil Prices

Burgum noted that the Trump administration is weighing a full spectrum of options to address surging oil and gasoline prices during the conflict with Iran, ranging from immediate short-term measures to complex long-term strategies.

Burgum emphasized: "As the federal government, it is our responsibility to step in and restore market order. With our formidable financial and naval power, the U.S. is capable of taking risks to ensure our global allies receive sufficient energy supplies—a role that few other nations can fill."

Currently, specific options under consideration by the administration include: coordinating with other nations to release strategic petroleum reserves to maximize the impact on prices; waiving fuel blending requirements; and even the unprecedented move of having the U.S. Treasury Department directly participate in crude oil futures trading.

The Treasury's willingness to propose such a radical plan may be closely linked to Treasury Secretary Scott Bessent’s deep financial background. Bessent, a former Chief Investment Officer at Soros Fund Management and founder of the macro hedge fund Key Square Group, has decades of hands-on experience in currency, bond, and commodity trading and is intimately familiar with the operational logic of financial markets.

Regarding the specific operational path, Phil Flynn, a senior analyst at Price Futures Group, described it as an "innovative attempt that thinks outside the box."

He speculated that the Treasury might attempt to lower short-term oil prices and ease market panic by "selling front-month futures contracts while simultaneously buying back-month contracts." However, Flynn also noted that the Treasury's core functions have always been fiscal policy, debt management, and occasional currency intervention; it has never directly intervened in commodity markets like oil, making this a major breakthrough if implemented.

Despite the government's seemingly comprehensive response plan, several market analysts are skeptical about the actual effectiveness of Treasury intervention in the futures market, generally believing that the impact of financial tools is always limited by physical supply fundamentals.

John Paisie, president of Stratas Advisors, stated bluntly that while such a move might temporarily curb speculation and slow short-term price gains by signaling intervention, it cannot solve the core problem of physical supply disruptions.

The impact of a closure of the Strait of Hormuz would be immense, and there isn't enough spare capacity outside the Gulf region to bridge the gap," Paisie said. "If oil supplies remain blocked, pure financial maneuvering will struggle to be effective, as traders will continue to bet on rising prices supported by fundamentals."

Tony Sycamore, a market analyst at IG, also believes that even if the Treasury intervenes directly in futures contracts, it would at most create a brief pause in prices or scare off some speculative bulls, with the effect unlikely to last more than a day or two.

Surging Oil Prices Spark Concerns

The oil price surge triggered by the Middle East conflict is plunging U.S. markets into dual concerns of rebounding inflation and economic slowdown. On Thursday, the three major U.S. stock indices tumbled collectively, failing to sustain Wednesday's rebound—the Dow Jones Industrial Average closed down nearly 800 points after plunging as much as 1,100 points intraday.

Sector-wise, only three of the 11 S&P 500 sectors closed higher. Energy stocks gained 0.59% on the back of oil prices, technology rose 0.39% due to its safe-haven appeal, and consumer discretionary ended slightly up 0.26%. Sectors highly sensitive to economic cycles suffered heavy losses, with consumer staples down 2.43%, materials down 2.27%, and industrials down 2.21%, making them the three worst-performing sectors of the day.

From a market psychology perspective, the longer the conflict persists, the slimmer the chances of a sustainable resolution, and the probability of a material shock to the economy continues to rise," said Kevin Khang, senior global economist at Vanguard.

Ed Yardeni, president of Yardeni Research, noted in a client report that energy stocks and commodities are currently the only effective hedges against war risks. He also warned that a prolonged closure of the Strait of Hormuz would "significantly increase the risk of stagflation," putting the Federal Reserve in a policy dilemma—even as the economy weakens, elevated inflation would limit the Fed's room for rate cuts.

Lee Hardman, senior currency economist at MUFG, emphasized: "Current uncertainty remains high, and markets are still unable to judge how long the conflict will last or to what extent global energy supplies will be impacted."

Market expectations for Federal Reserve rate cuts have undergone a dramatic shift. At the start of the week, traders generally expected two rate cuts this year, but those expectations have narrowed significantly as oil and gasoline prices jumped. As of Thursday, the market's estimated probability of two rate cuts within the year has fallen below 50%.

In a research note, commodity analysis firm Ritterbusch and Associates stated: "With no clear signal of the conflict ending, further strength in oil prices seems inevitable. Should the conflict extend into next week, WTI crude reaching $95 per barrel is by no means impossible."

Trump announced this past Tuesday that the U.S. would ensure the safe passage of energy shipments in the Persian Gulf by providing insurance guarantees and even deploying naval escorts.

Analysts believe this statement sends a positive signal about the U.S. commitment to securing energy transport and represents a reasonable start to managing the crisis; however, more specific operational details are needed, and the commitments must be fulfilled to truly stabilize market confidence.

Nevertheless, most industry experts also point out that these measures are merely stopgaps for short-term risks; to fundamentally resolve energy supply uncertainties, the only core path remains pushing the conflicting parties toward a ceasefire.